In this paper, a robust algorithm for fault diagnosis of power system equipment based on a failure-sensitive matrix (FSM) is presented. The FSM is a dynamic matrix structure updated by multiple measurements (online) and test results (offline) on the systems. The algorithm uses many different artificial intelligence and expert system methods for adaptively detecting the location of faults, emerging failures, and causes of failures. In this algorithm, all data obtained from the power transformer, which have various nonlinear input and output parameters, are processed using the parallel matrix structure of the FSM to reach a global solution quickly. The parameters of a power transformer are used to verify the algorithm under 4 operating conditions simulated in the MATLAB-Simulink program. The obtained results show that the algorithm is convenient for determining incipient failures of a system that consists of multiple parameters.